Brand extension through merchandise: a big opportunity for prestige carmakers – but one that brings pitfalls for the unwary
18 June 2015
Picture the scene. You’ve just taken delivery of a shiny new sports car. Costing more than you’d admit to anyone but your closest friends, it was manufactured by one of the world’s most prestigious automotive companies. The company has a global brand that’s loved with fierce devotion by its fans, and envied by its competitors.
Proud of your new purchase, you take it for a spin down to the local shopping centre. Strolling along the arcade, you glance into the window of a mass-market clothes retailer. And what do you see, but a display of t-shirts with your carmaker’s brand emblazoned across the chest – selling for the princely sum of £10 each.
How do you think you’d feel? I’ll leave that to your imagination. But one thing’s for sure: when you drive out of the shopping centre car park, you’ll feel slightly less proud of your new car than you did when you drove in a few minutes earlier.
Of course, this story is fictional. But it does provide an illustration of the very real challenges facing top-end car manufacturers – and, in fact, any luxury goods manufacturer - as more and more of them seek to tap into the power of merchandising to extend their brands and build greater equity, reach and value.
For automotive brands that get this right, the rewards are substantial. By associating themselves with high-quality branded products aligned with their own brand values, they can improve the strength and positioning of their brands, enhance the loyalty of their customer base, and also generate some ancillary revenues – albeit probably quite modest compared to the core revenues, accounting for perhaps 3% to 6% of overall sales.
A successful merchandising programme can generate further benefits as well. In a world where social media has made a pervasive and readily-recognisable brand a more important asset than ever, brand merchandising can reach people who would be untouched by traditional motor advertising.
It can also capture the attention and imagination of children – the car buyers of the future. As kids, how many of us treasured our Corgi Toys model of the Aston Martin DB5 as driven by James Bond, to the extent that the magic has never quite gone away? Or how about our bright red Scalextric Ferrari?
So for prestige auto brands, there’s no question that merchandising offers major opportunities. But if not planned and managed correctly, it also brings substantial risks. Branded merchandise that is low-quality and priced to low, or looks like an overpriced rip-off seeking to generate quick revenues, may not only fail to enhance the brand’s value – it could actually profoundly damage it. This danger is often greatest where auto companies license out their brand to try and generate the maximum royalties, while exerting insufficient control over the licensees’ product range, quality and pricing.
So, how can a prestige carmaker ensure its merchandising actually enhances its brand equity rather than detracting from it? My experience with clients in the industry highlights a need to focus on four key areas.
- First, the strategy. This means being clear about the core objective of the merchandising programme: is it to enhance positioning? To strengthen loyalty? To drive consumption? And how does it fit into and enhance the customer’s experience and perception of the brand?
- Second, the products. Merchandise categories play different roles in building awareness, trial, usage and premium imagery: just think about the power of a fashionable Bentley jacket versus a Bentley mug. Does the assortment reflect the brand image and values? Is the pricing appropriate to the target market, and does it support the strategy?
- Third, the channels. Will the product be sold via franchisees, fully-owned retail stores, car dealers, via the website, or through a mix of these? Do you really think a car dealership can offer the ultimate shopping experience for a customer looking for fashionable clothing? Many auto companies encounter major challenges in trying to offer a seamless and appealing omni-channel consumer experience.
- Fourth but not least, process and organisation. Talent is key: buying motor components is very different from buying fashion items – and you probably don’t want engineers doing both. So recruit or buy in the skills you’ll need. Further vital attributes include deep understanding of intellectual property rights and the related international tax issues, along with expertise and experience in managing cashflows from royalties or licensing agreements.
An auto company that approaches merchandising with a view to generating as much cash as quickly as possible is probably putting its core brand in peril. Which in turn may mean it’s putting its very future at risk.
Conversely, a luxury brand that gets these four elements right will be well-placed to reap major benefits from merchandising.